By Loyd Eskildson

Ananth V. Iyer and Sridhar Seshadri, the authors of Toyota's Supply Chain Management (McGraw-Hill/ 2009) explain how Toyota implements its Toyota Production System in automobile manufacture. Variety is chosen carefully to balance market demands and operational efficiency. Reducing variability enables all of the supply chain flows to operate with low levels of inventory. Visibility ensures that bottlenecks are noted and responses immediate. Toyota performance metrics have a 50% weight for results and a 50% weight for process compliance. Flexibility is emphasized throughout.

One approach used at Toyota to reduce build combinations is to include many standard equipment options, based on the model selected. Rental sales volume allows automakers to fill in demand valleys during the year. North American production for Toyota is typically allocated and assigned to dealers 2-4 weeks prior to production. Some accessories can be added in the marshaling yard.

Overseas production distribution for North America takes 3 - 5 weeks to get to American ports, another 2-7 days to get to the dealers. Vehicles are first allocated to a required area prior to being loaded onto the ships (different ships go to different ports - Portland, Long Beach, Houston, Jacksonville, and Newark), then allocated and assigned to dealers in transit to the port.

Tier 1 suppliers make parts and ship directly to the assembly plants; Tier 2 link to Tier 1, etc. Toyota takes charge of pickup and transportation of parts from suppliers to plants - routes are designed for parts to be picked up from multiple suppliers for multiple plants and delivered to regional cross-dock operations. To ensure that both trucking and rail companies have adequate capacity, day-to-day forecasts of volume by destination are provided.

Dealer allocation occurs twice each month, 4-5 weeks prior to the scheduled build dates. Vehicles for the day are pre-sequenced so that vehicles high extra workloads (eg. sunroofs) are not scheduled back to back. A plant's freeze point ranges from 5-10 days out, selected so 80% of supplies arrive within that point. Line speed changes with 1-2 months lead time. Flexibility is improved by purchasing option-related parts from suppliers located closer to the assembly plant.

Complexity reduction is achieved through parts commonality, making high-volume options standard, eliminating options that don't sell well, designing accessories that can be installed after the vehicle leaves the factory, limiting product offering within a market area - eg. stick shifts sell well in Europe but not the U.S., combining related options into related packages (eg. safety) - these actions also simplify buying and retail stocking.

Most Toyota plants employ some percentage of temporary workers to support normal production; if demand slows they can be reduced. The percent of time production is planned for normal rate is usually set at less than 100% to allow stopping for quality problems. (Lines are stopped about 5,000 times/day in Toyota's Kentucky plant.) Fast die changes are another source of flexibility, body-shop robots have flexibility to handle different models, painting occurs in small batches to limit nozzle cleaning (emits pollutants). Less than ten out of 353 assembly steps use sequence suppliers (eg. seats). Workers rotate tasks every two hours to reduce monotony and to use different muscle sets. Of the 20 hours required to make a car, about nine are spent in the paint shop.

Suppliers rank Original Equipment Manufacturers on 17 criteria, including trust, timely information, degree of help to decrease costs - Toyota is highest (407) vs. G.M. (lowest at 131). G.M. has five times the (highest) emphasis on cost reduction vs. quality, Honda and Toyota have the lowest at 1.7 times. Toyota has a higher number of engineers helping suppliers and vice-versa (re design) than others.

In Japan, 85% of volume comes from suppliers within 50-miles (one hour) radius; in North America the goal is for 80% parts delivered within 3-5 days lead time. Suppliers have to share ideas with other suppliers making the same item.

Toyota's promotion costs for cars are less than $700/vehicle, compared with over $2,500 for others. In a crisis (eg. dock strike, single supplier problem), someone is assigned ownership of the problem so things don't slip between the cracks.
 

Loyd Eskildson is retired from a life of computer programming, teaching economics and finance, education and health care administration, and cross-country truck driving.  He's now a reviewer for Basil & Spice.

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